Attorney general owes us straight answers in health care investigation

Thanks in part to Obamacare and in part to an aggressive move by California’s attorney general, this is a historic moment for health care in the Tri-Counties.

As I write this column, more than half the population of the region is served by a hospital that is in the early stages of an antitrust investigation. As Staff Writer Dana Olsen reports in this edition of the Business Times, Dignity Health, the parent of hospitals in all three counties and Cottage Health System, the only hospital operator in South Santa Barbara County and the Santa Ynez Valley, are targets of the probe.

They apparently are being asked to submit documents and other information related to pricing practices including those under Medi-cal, the state-run health care plan that serves poor and working-poor families in California.

Neither hospital group has been willing to comment to the Business Times and the office of Attorney General Kamala Harris has been less than forthcoming about the nature of the investigation, which the Wall Street Journal reported was in the earliest of stages.

But a simple analysis of the situation leads to an inescapable conclusion: California is not going to be able to afford to pay for its share of the mandatory care required under the Affordable Care Act, commonly known as Obamacare.

In fact, if my reading of the situation is correct, the costs of fully implementing Obamacare could dig a hole in the state’s budget, even if new states tax increases become law in November. That’s because the Act, as it is written, will require states to bring millions of people into the health care system and, to the extent they are poor or close to the poverty line, that means providing new services without enough money coming in from federal reimbursements or individual co-pays to cover the cost.

We’ll give Harris credit for analyzing the situation and coming up with a street smart way of plugging the hole. She’s apparently going after the biggest players with the biggest market share and trying to use the threat of an antitrust action to get money damages that will make up part of the shortfall.

This is an effort by the highest level of state government to close the budget gap. And if it actually works, the administration of Gov. Jerry Brown will then go to Washington for the rest of the money or for a waiver to offer care that works around the Obamacare mandates.

But antitrust shakedowns, a strategy at which Harris apparently is an expert, come with a certain amount of risk. Yes, Dignity Health and Cottage do dominate many of the markets they serve. But they are not exactly large corporations with billion-dollar stock option grants, fat dividends and sky-high profit margins.

They are large nonprofits that traditionally have handed out millions of dollars a year in charity care and where most of their surpluses are plowed back into local communities in the form of new facilities and other investments. By definition they are reasonably transparent in their accounting practices and they have operated in a heavily regulated environment.

No hospital executive, whether operating a for-profit or not-for-profit institution, wants to operate under an antitrust cloud that can affect fundraising and recruitment and that distracts from day-to-day operating focus. But

Harris is playing a dangerous game and the cost of losing could be paying the full price of Obamacare, with health care systems now acting as intransigent “frenemies” instead of cooperative partners.

It would be ironic if in California, the bluest of the blue states, the only solution to Obamacare’s mandates was a fixed-cost plan that crams costs down to the local level and forces hospital systems to swallow the increased load of Obamacare mandates. The we-dare-not-speak name for that sort of scheme is a voucher system. And one of its biggest advocates is Paul Ryan, GOP presidential candidate Mitt Romney’s running mate.

The bottom line is this: The 1.5 million-plus residents of the Tri-Counties, whose hospitals are operating under the antitrust cloud, deserve some straightforward answers from Harris about what her probe is all about and where it is headed.